Ohio Merchant Cash Advance Defense Lawyers
Ohio MCA Defense Lawyers: Protecting Your Business from Merchant Cash Advances
Merchant Cash Advances (MCAs) can be a lifeline for small businesses, providing quick funding. However, they often lead to significant financial and legal issues. Many Ohio businesses that cannot repay their MCAs face lawsuits, UCC liens, and aggressive collection practices. This guide explains what MCAs are, relevant Ohio laws, and how business owners can protect themselves by working with an experienced Ohio MCA defense lawyer.
What Are Merchant Cash Advances (MCAs)?
A Merchant Cash Advance (MCA) allows a business to receive a lump sum of money upfront in exchange for a portion of future sales. Unlike traditional loans, an MCA is considered the sale of future receivables. This structure allows lenders to avoid Ohio’s strict usury laws on loan interest rates. However, many businesses choose MCAs because they are easier to get, especially for companies with poor credit or lack of collateral.
While convenient, MCAs come at a high cost. MCA agreements typically involve high interest rates, ranging from 40% to 350%, and daily or weekly repayments that can drain a business’s cash flow. For example:
- A small Ohio restaurant may take out a $50,000 MCA.
- Daily repayments are based on a percentage of the restaurant’s credit card sales.
- On slower weeks, the business might struggle to cover both MCA payments and other expenses, leading to default.
This example illustrates how, despite the quick funding offered by an MCA, the aggressive repayment terms can lead businesses into deeper financial trouble, especially when revenue fluctuates. As we’ll explore in the next section, this strain on cash flow often results in legal challenges for businesses.
Common Issues Ohio Businesses Face with MCAs
Ohio businesses often experience financial stress due to the high repayment demands of MCAs. Daily or weekly deductions from revenue can leave the business with little cash to cover operating costs like payroll or inventory. Nationally, approximately 15% of businesses that use MCAs default, and this trend is common in Ohio.
As we’ve seen with the restaurant example, these high repayments make it difficult for businesses to operate smoothly, leading to more severe consequences. Defaulting on an MCA can lead to personal guarantees, allowing lenders to pursue not only business assets but also the owner’s personal assets. This includes actions such as freezing bank accounts or placing liens on property.
These outcomes often force business owners into a corner. However, Ohio law provides some protections, as we’ll discuss in the next section, where we explore the specific legal landscape surrounding MCAs and UCC liens.
Ohio Laws Governing MCAs and UCC Liens
Ohio’s Uniform Commercial Code (UCC) and MCA Contracts
Ohio’s version of the Uniform Commercial Code (UCC) provides the legal framework for how MCA lenders secure their interests. When a business accepts an MCA, the lender typically files a UCC-1 financing statement to create a lien on the business’s future receivables. This lien gives the lender the right to seize assets if the business defaults on its payments.
While the UCC protects lenders, it also provides a structured legal process that can be challenged by business owners. As we touched on earlier, personal guarantees and asset seizures can be damaging, but there are legal defenses. Ohio courts generally uphold UCC liens, but an MCA defense lawyer can question their validity, particularly if the contract was unfair or the lien improperly filed.
This connection between business rights and legal procedures under Ohio’s UCC is crucial when navigating MCA disputes. Next, let’s dive deeper into another key element of Ohio law: usury laws, which govern loan interest rates and could provide businesses an opportunity for defense.
Usury Laws and How They Impact MCAs
Ohio’s usury laws (Ohio Revised Code § 1343.01) limit interest rates on loans to 8% per year unless a higher rate is agreed upon in writing. However, since MCAs are considered sales of future income, they are not subject to these limits. Ohio businesses can argue in court that their MCA is effectively a loan, especially if it includes:
- Fixed repayment terms, or
- Fees that resemble interest rates.
This principle applies not only to personal loans but also to MCA contracts when structured in a way that mirrors traditional loan terms. By challenging these terms in court, businesses may be able to reduce their overall debt burden or even invalidate the MCA contract entirely. As we move to the next section, we’ll explore how businesses can use these legal strategies in practice when facing lawsuits and liens.
Defense Strategies for Ohio Businesses Facing MCA Lawsuits
Challenging the MCA Contract
Many businesses in Ohio contest MCA lawsuits by arguing that the contract is either a loan or unfair. As mentioned earlier, when an MCA is structured with fixed payments, it may fall under Ohio’s usury laws. In these cases, the business can push to reclassify the MCA as a loan, which would drastically reduce the allowed interest rate.
Building upon the concept of contract fairness, businesses can also argue that the terms are unconscionable—meaning they are so one-sided that they are unjust. By contesting the structure and fairness of the agreement, an MCA defense lawyer can help protect the business’s assets.
Fighting UCC Liens
UCC liens give lenders the right to seize a business’s assets if it defaults. As we discussed in the section on Ohio’s UCC laws, these liens can be legally challenged. An Ohio MCA defense lawyer can argue that the lien was improperly filed or negotiate to limit its scope. By reducing the lien’s reach, businesses can protect critical assets while working toward a more manageable resolution.
The legal strategy of fighting UCC liens complements the broader defense of challenging unfair MCA contracts. Together, these strategies form a comprehensive approach to MCA defense, as we’ll see in the negotiation strategies discussed below.
Negotiating Settlements
In some cases, Ohio courts grant injunctions to stop lenders from freezing bank accounts or collecting funds while the case is being resolved. MCA defense lawyers can also negotiate with lenders to:
- Reduce the total debt, or
- Adjust repayment terms.
Building upon the defense strategies of challenging the contract and UCC liens, negotiating a settlement is often a practical solution. This approach can help a business continue its operations while working out a more favorable repayment plan, allowing it to survive and recover.
Conclusion: Protecting Your Business from MCA Disputes
Merchant Cash Advances can be a quick fix, but they often come with high costs that put Ohio businesses in financial jeopardy. If your business is facing an MCA lawsuit, UCC lien, or aggressive collection efforts, it’s important to consult an experienced Ohio MCA defense lawyer. A lawyer can help you:
- Challenge unfair contracts,
- Fight liens, and
- Protect your business assets.
This not only applies to defending the business but also to protecting the personal assets of the owner, as highlighted in our discussion of personal guarantees. In conclusion, by seeking legal help, Ohio businesses can navigate the challenges of MCAs and emerge with a stronger foundation for financial recovery.